30 January 2018

The Government is tying itself in knots over the Brexit economic impact assessment. But Jill Rutter says it must publish the assessment so it can move on to dealing with the impact of leaving the EU.

Before Christmas we had the row over the 58 sectoral impact assessments, which Brexit Secretary David Davis had told Parliament were in “excruciating detail”, dragged by arcane parliamentary procedures out of a reluctant government. These turned out to be rather routine briefing sheets.

On Monday, The Times reported secret briefing documents being shared with ministers in darkened rooms, handed back so there were no copies floating about ready to be leaked. By Monday evening, those very same assessments were lighting up Twitter thanks to Buzzfeed. The results won’t be a surprise to anyone who watched our recent panel on the economics of Brexit.

The new information is on the (limited) value of negotiating new free trade deals

It is not surprising that the assessment shows broadly the same story as the Treasury assessment published before the referendum. The Norway option that keeps us close to the EU has the least economic impact, whereas trading with the EU on World Trade Organization terms – what would happen in the case of no deal – has the most impact. The worst option means gross domestic product (GDP) would be 8% lower than it would be if we stayed in the EU – cutting a bit under 0.5% off growth each year of the period. By comparison, UK GDP fell by over 4% in absolute terms in 2009.  

The new element is an assessment of the value of negotiating potential new free trade deals. This matters because those trade deals are the reason the Government has turned its face against staying in the Customs Union. What the assessment is reported to show is that the benefit of these deals is dwarfed by the scale of the potential losses from distancing ourselves from the EU.

The Government should have produced its assessment of the case for leaving the Customs Union a year ago, when the Prime Minister spoke at Lancaster House.

The Government has – for now – resisted demands in Parliament to formally put out the assessment. Instead, DExEU Minister Steve Baker has promised that the assessment will be published when Parliament gets to vote on the final deal. But, as many have pointed out, that is too late. Rather than spend ages on what are likely to be futile efforts to put it back in the safe, it would be much better to publish the assessment and move on.

The Government needs to put forward its preferred option on the future relationship with the EU

The Government points out that no option assessed in this leaked report is its preferred option: a bespoke deal. Given that the Prime Minister says that option is somewhere between Norway and Canada deals, it might be reasonable to look at ending up in the range between Norway (-2% GDP) and a free trade agreement (-5% GDP).

The Government is still keen to say that a bespoke option is superior and avoids all the economic costs of leaving. But it has not told us what a bespoke deal looks like – and therefore the modellers have been unable to assess it.

If the Government wants to say none of these options represent our economic future, it needs to stop the internal squabbling and set out what it thinks our future trading relationship will look like – and why it meets both UK and EU requirements. We argued in December that the UK needs to take the initiative on its preferred relationship rather than wait for the EU to buckle first and offer us the bespoke deal of our dreams.

The next official public forecast will be at the Spring Statement in mid-March. The Office for Budget Responsibility (OBR) needs to be given much greater clarity for the next forecast on the future EU trading arrangements it should be modelling.

The drivers of economic performance go much deeper than Brexit

Internal economic assessments may be inconvenient, but government often makes policy decisions that put other objectives above the economy. The migration target, to which the Prime Minister is wedded, is a prime example of where a specific priority (controlling the inflow of people) is judged to be more important than growth maximisation. Indeed, OBR modelling already shows the economy taking a hit from reduced migration flows after Brexit.

We could have a more honest debate about Brexit if the Government stopped tying itself in knots and acknowledged that leaving the EU was likely to harm the economy. Then it could focus on how to mitigate the impacts by, for example, tackling the UK’s systemically poor productivity.

Comments

If the latest leaked economic predictions post-Brexit are based on the discredited gravity model which was such a long way out in its pre-referendum 'Project Fear' predictions, then I agree we should just move on, though I wouldn't even bother to publish them.

The emergency budget forecasts were not actually based on the gravity model I don't think.. they were more conventional forecasts re impact on consumer/investor confidence.. They were right about a v signifncat devaluation - but assumed (implausibly) no policy response.
It was the HMT long-run predictions on future trade relations which were based on gravity model. Of course nothing has yet changed on that yet as we are still trading on pre-Brexit terms with the EU. but no point having a big argument about stuff noone can see.. Models only as good as their assumptions - so better to publish and discuss than conceal.

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